Even during the current pandemic, the hot seller’s markets is still holding strong across the country. In many cities, including Knoxville and Farragut, buyer demand is up while inventory remains historically low — often leaving home buyers to battle it out in multiple offer scenarios and sellers trying to navigate it all.
Having multiple offers on your home is great, but how do you make sure you choose the best offer and don’t pass up an even better one? With multiple-offers on homes becoming the norm in hot markets, knowing how to navigate these situations is vital to ensure you’re making the best possible choice FOR YOU.
You might be tempted to jump on the highest offer received, but you need to remember, price is only one piece of the puzzle. Aside from price, there are several other factors sellers should consider.
Before we delve into how we evaluate an offer, here are two points we need to remember:
- Sellers need to work to get the very best deal, but do do that, you first need to define your selling goals. Are you looking to make the most money from the sale? Do you need the flexibility to move on your own timeline, or do you just need to sell fast? Knowing your goals for selling ensures we’re that when you compare offers, you can make the best decision.
- Once you understand what’s most important, your must be prepared for what to expect. Based on your sales goals, your must be aware which terms you need to pay attention to and what these terms mean, even before you start receiving offers. Taking the time to learn this before receiving offers will allow you to understand and evaluate offers more easily when they come in.
The key to evaluating offers is making sure the offer terms align with your goals. Whenever you receive an offer on your home, an effective way to analyze the offer’s different facets is by grouping offer terms into three categories: speed, certainty, and price.
Speed: How fast do you want to move?
Although speed mostly revolves around the closing date, there are a few other factors to consider, but we’ll start with the most obvious:
What is the closing date — and does it work with your timeline?
This one is pretty self-explanatory — when does the buyer want to close on your home? But more importantly, how closely does this date align with your timeline? If you are looking to move out as soon as possible, a more immediate date is probably ideal. But if you’re waiting to close on a new home, you’re probably looking for a bit more flexibility.
How flexible is the buyer on timing?
If your circumstances require you to move on a specific timeline, is the buyer willing to accommodate that? More flexible buyers might present an offer with a leaseback option, which could be an excellent alternative for you if you need to buy yourself more time before moving out.
When does the offer expire?
Many offers include an expiration date set by the buyer. This date can be a good indicator of how fast the buyer is looking to move to close the deal. However, this can sometimes put sellers in a tricky situation, especially when there are multiple offers on the table, and you need to decide within a short timeframe.
Certainty: How qualified is the buyer?
Once we’ve considered how well the offer aligns with your timeline, we move on to evaluating the certainty of the offer:
Is it an all-cash offer?
Most times, all-cash offers mean quicker and less risky sales, which is what makes them so appealing. The primary benefit to an all-cash offer is not having to worry about the possibility of an appraisal coming in too low (although a cash offer could still have an appraisal contingency so make sure you look for that) or third-party financing falling through. But even though all-cash offers bring a heightened level of certainty, they often come with a lower price tag, so depending on your goals, you’ll have to weigh this cost.
How financially secure is the buyer?
Having a financially stable buyer will help ensure a smooth closing. A few factors can help you determine how financially secure a buyer is: how much money they are putting down, their earnest money deposit, and if they’re preapproved for a loan.
- Down payment: Typically, a higher down payment is indicative of a serious and more financially secure buyer. The higher the down payment, the better. Down payments between 20-50 percent are a strong indicator of financial stability.
- Earnest money deposit: Earnest money is a signal of good faith from the buyers that they want to purchase your home. The buyers won’t get this money back if they back out of the deal unless specified in the contract. Typically, buyers will default to 1% of the purchase price. An earnest money deposit higher than 1% means they’re very serious about buying the home.
- Preapproval: These days, being preapproved for a loan is pretty much a necessity in competitive markets. Even though preapproval doesn’t guarantee buyers’ financing, it’s a good indicator that they’re ready and able to make a purchase.
Are there contingencies?
When a buyer submits an offer with contingencies, they’re stipulating additional requirements that must be met before the sale can be finalized. Any contingency included in the contract should be noted and taken into consideration. When looking at offers, it’s critical that you understand how contingencies might impact the sale.
Financing, appraisal, and inspection contingencies are pretty standard. Although home-sale contingencies are also common, they do add another layer of complexity to the deal. In any case, the fewer contingencies, the fewer chances the buyer has to back out of the sale. And throughout the pandemic, we’ve seen buyers waiving contingencies to present a stronger offer.
Price: How much are they offering?
Although price is pretty self-explanatory, there are a few additional factors to always take into account when evaluating an offer, because they’ll end up affecting your net proceeds:
Is the buyer asking for you to pay closing costs?
Generally, both the buyers and the sellers are responsible for paying their own portion of the closing costs. But oftentimes you’ll see buyers who are pushing the limits on what they can afford, asking the seller to pay a portion of their closing costs. In today’s competitive market they are mostly making offers above your list price and then asking for you to pay some of their closing costs. Obviously, this reduces your net proceeds so be wary of this when comparing offers.
This can also be an issue when it comes to getting an appraisal as the higher price that they’ve had to offer in order to get closing costs paid might be higher than the appraised value of the home, which could cause big problems. Research shows that over 30% of the deals that fall apart before closing are because of appraisal related issues.
Is the buyer requesting that the seller pay for the home warranty?
Although home warranties aren’t required, many buyers choose to purchase one for peace of mind. For example, it’s standard for the sellers to pay for the buyers’ home warranty in Tennessee, but the buyers might also choose to pay for it themselves to make their offer more appealing.
Is the buyer offering a leaseback — at what expense?
If you require a more flexible timeline, buyers who are in-the-know might add the option for a leaseback to their offer, giving you the flexibility to move out on your own terms. Typically, the buyers require you to pay rent during this time. But in competitive markets, buyers might agree to lease at an under-market rate or for nothing at all — a gesture that could end up saving you a nice chunk of change.
When it comes to navigating multiple-offer situations, it’s important to conduct a comprehensive analysis. But when you receive five, 10 or even more offers, thoroughly evaluating each offer is no easy task. We naviate these situations for our clients regularly. It’s important to have a trusted advisor with an experienced set of eyes guiding you on what is typically the sale of your most expensive asset.
Ready to sell your home in Knoxville or Farragut? Have questions? Call/Text me, Troy Stavros with CornerStone Realty Associates today at 865-999-0925 today!
